Introducing SprinkleBit: the DIY Investment Revolution

Alexander Wallin moved to the USA from Sweden in 2007 to pursue a Bachelor in Economics at the University of California, San Diego. Today, 6 years later, he is running the social online investment platformSprinkleBit and has secured seed round funding of $800,000. Fellow Swede and RIG summer intern 2013 Erik Lehmann caught up with Alexander between volleyball tournaments and equity research sessions to check in on SprinkleBit’s progress and Alexander’s view on raising capital.

First off, congratulations on winning the San Diego Business Journal’s Innovation Award for financial innovation.

Thank you very much. I was quite surprised to be honest but obviously very honoured, especially when looking at all the other very strong nominees that we were up against in the final.

So tell me about SprinkleBit. What are you doing and what are you trying to achieve?

What we have today is a stock simulator, where you can buy and sell virtual stocks using “SprinkleBucks”. We have “The SprinkleBit University” where you can educate yourself and learn more about the world of finance and then the social network where you can communicate with friends and experts. In the fall we will launch our brokerage service so you can trade real stocks with real money.

When I signed up for SprinkleBit about a year ago it was free. How are you going to make money?

It is free to sign up for SprinkleBit because the key to building a strong social network is to have an extensive user base. However, when the brokerage service rolls out we will, like the other brokers, charge a commission on the trades. Our marketing forecast predicts 3000-5000 new users per month and conversion rates of about 20%, meaning the 20% of people who sign up will actually start to invest.

Between 3000 and 5000 new users per month is quite impressive. What is the secret?

Well, apart from being good at using Google Ad Words and Facebook campaigns, a recent study we did showed that we have a viral coefficient of 4.57. That is, for every person that signs up at SprinkleBit, they get an average of 4.57 of their friends to sign up as well. That is a very efficient way of growing a user base.

What is your vision with SprinkleBit; how are you going to change the world?

If we consider 10 years from now, SprinkleBit will be the social investment platform. SprinkleBit will be where you will turn for everything finance related. Be it securities-investments, the financing of a new loan, or setting up a credit card. All of these services will be consolidated on our platform and at the same time you can communicate with your peers through our social network. You will discuss your social life on Facebook, jobs and careers on LinkedIn, and finance on SprinkleBit.

How much funding did you raise and what were the biggest challenges in doing this?

To this day we have raised approximately USD 800.000 as a seed round. The investors are mainly family, friends, and friends of friends. At SprinkleBit we are building quite a complex product which posed a challenge in that it makes it harder to receive VC funding as they want to see a minimum viable product. If your business idea is to sell shoes over the internet, it is pretty easy to show an investor “Here are the shoes and this is the guy who is going to build my website”. We have a very good ongoing conversation with a couple of VCs but it is too early for them to make any investments yet. They are willing to wait until we have more traction even if the price will be higher.

$800.000 is a lot of money. If I said it is easier to raise capital for start-ups in the US than in the UK, what would be your response?

I disagree. I think people generally base that opinion on all high profile VC investments they read about in the news. If you would actually look at the earlier stage deals involving angel investment rather than VC investment, I would agree that there is indeed more capital available in the US than in the UK, but that the large number of firms competing for it offsets any advantages for US start-ups.

So what do you think is the key to succeed in raising capital?

First of all, I think a lot of companies go wrong in that they do not know what exactly they are raising capital for. They start with a number instead of a purpose which is not going to get you anywhere. Secondly, I believe in maintaining a network of potential investors that you continually keep up to date with your progress. The important thing there is to not send out messages saying “by January 2014 we will have 40.000+ users” or next year we expect do to a, b and c. Instead, the focus should be on letting them know when you have done something interesting or are starting something new. That way you can maintain a positive dialogue without the risk of diluting your word based on complex predictions about the future. Finally, focus on investors that either know your team well or know your industry. That will save you loads of time and negative answers.